CSE records strongest start to a year in 2018

Foreign investors indicated a renewed interest in Sri Lankan stocks in 2017 with record breaking purchases worth Rs 112 billion, and CSE has seen that momentum continue into 2018 as well, said Head of Market Development at Colombo Stock Exchange, (CSE) Niroshan Wijesundere.

The level of interest the CSE has seen within the very first month of the year is quite encouraging and indicates that Sri Lankan stocks remain attractive to foreign portfolio investors, especially those with investment interests in frontier markets.

“What is particularly encouraging is that the level of foreign buying we have seen in 2017 and in the early parts of this year mark a sharp reversal from 2015/16, during which we saw significant fund outflows”.

Present developments give us a reason to believe that Sri Lanka at the moment is viewed as a market with considerable growth potential, which is vindicated by the substantial level of foreign investor interest we have experienced in recent times,” he said.

He attributed the attractive valuations with the market Price Earnings Ratio at 10.69 even at present, one of the lowest in the region as one of the key forces behind this success.

“Encouraging performance among listed companies, an improving macroeconomic outlook and a strong value-driven investment case too have contributed to foreign investors placing their confidence in Sri Lankan Stocks,” he said.

Positive developments such as noticeable improvements in the gross official reserves, flexible exchange rate management, a recovering balance of payments position, strong FDI numbers and fiscal consolidation have contributed to an improvement in the macro-economic outlook, which is certainly important when attempting to attract foreign investment to the market.

Sri Lanka was also recently mentioned on the Wall Street Journal as the most attractive frontier market in comparison with 11 other countries, according to a model presented by the Citi Bank.

Record breaking foreign investment in the Sri Lankan stock market has continued into 2018, with Rs 4 billion in net foreign purchases during the month of January, a new record for the first month of any given year.

The month recorded Rs 10.7 billion in foreign purchases in the market, while foreign investors made sales worth Rs. 6.7 billion, which has established a record breaking start to the year in terms of net foreign purchases. “The Sri Lankan stock market has over the years been quite unique, in the sense that it has had a low correlation with developed and emerging markets and their trends.

There is a strong reason to believe that the Sri Lankan stock market is based on local driving forces and the performance of our listed entities, rather than global market related developments.“Foreign inflows certainly do have a positive impact on the balance of payments as witnessed in 2017, which was also acknowledged by the Central Bank,” he pointed out.

Increased international interest in the Stock Market would lead to a broader focus on the country as a whole, and would benefit the Sri Lankan economy and listed companies in their bid for growth.

A stock market that attracts foreign investors has the potential to be perceived as a sign of strength, and of a market-friendly environment, especially in the context of an emerging country like Sri Lanka.

“Foreign investors have certainly been quick to move on the buying opportunity Sri Lankan stocks have presented since 2017and this makes a strong case for improved involvement among local institutional and individual investors as well. The opportunity has always been available for both local and foreign investors and is still on the table.”

The onus is on the local investors to engage in the market and benefit from its value proposition. We as an exchange will work on creating the awareness on these opportunities both among existing and new local investor segments.

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